Finance Monthly. 66 have been: 2006 limitation on the use of Trusts; the 2007 introduction of the transferable (between spouses) NRB; the 2009 freezing of the NRB; the 2017 introduction of the Residence NRB. For many in the group known as the “Mass Affluent”, the introduction of the Residence NRB, which effectively fulfilled the Conservative Party’s promise of a £1m NRB, has lifted them out of the IHT net. However, the freezing of the main NRB against a background of increasing asset prices, particularly housing, has exacerbated the IHT issues for higher net-worth individuals. As already mentioned, meanstested long-term care has the potential to be more detrimental to a family’s inheritance than IHT, so the repeated failure of successive Parliaments to deliver on any of the recommendations in the Dilnot Report is a key consideration in estate planning – low asset thresholds and no cap on expenditure. As for the future, I think we can see two polar opposites emerging, with the Conservative Party toying with a manifesto promise to abolish IHT and the Labour Party likely to make it more onerous. The Treasury, for example, is keen to reform some lifetime gifting, which has remained unchanged since 1984. Annual gifts of £3,000 are exempt from IHT but if that amount had been index-linked since 1984, it would now be some £9,300. The Treasury has in mind £15,000 but with a sting in the tail – regular, affordable gifts out of income would no longer be exempt. If you are a Billionaire with an income of several million pounds a year, you can really exploit the gifts out of income exemption, with £15,000 per annum hardly noticeable. It doesn’t take much imagination to think that if Rachel Reeves is in number 11 Downing Street as Chancellor of the Exchequer, the Treasury would be pushing at an open door with such reforms. Another reform on the Treasury’s agenda which might also benefit from that open door is a reintroduction of CGT on death. Currently, taxable assets such as shares and second properties are revalued on death for IHT purposes, but any potential CGT is forgiven whether IHT is payable. Could you delve deeper into the importance of a will in the process of estate planning? Are there any prevalent misunderstandings about wills that you’ve noticed among your clients when they first contact you? Fundamentally, a Will achieves two things that the Laws of Intestate Succession don’t, the appointment of an Executor or Executors to manage your finances after your death and to specify who has what and when. Remember, currently, the Laws of Intestate Succession don’t recognise the concept of a “Common Law Spouse”, even with children, so a Will is absolutely essential in this situation. Most couples with children, the common solution is to have a Will leaving everything to each other and then on to the children on the second death, which is what most people want to happen. However, there are several factors this doesn’t address, such as: • Long-term Care Costs. Prior to the first death, there is a disregard for the matrimonial home for means-testing whilst the other spouse is living in the property, so the cost of care may not be so much of an issue at this point. However, following the first death, the property may have passed by survivorship and everything else via the Will, so the combined assets are available to pay for care. Having written a Will, remember it isn’t a “tablet of stone” that will stand the test of time. Your circumstances are constantly changing, and so should your Will; at minimum, it should be reviewed every 5 years. Banking & Financial Services
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